Goldman Sachs flagged the likelihood of higher corn and wheat
prices, dismissing as temporary any negative reaction to a "bearish" US government report.
The bank, which also restated a forecast of $20-a-bushel
soybeans, concurred with the consensus thinking that the US Department of
Agriculture's monthly Wasde crop report released on Wednesday held negative factors for
corn and wheat values.
The USDA surprised commentators by raising, not lowering,
its estimate for domestic corn stocks at the close of 2012-13, cutting expectations
for feed and export demand and making a smaller-than-expected downgrade to its
And the Wasde also made a relatively modest downgrade to
expectations for world wheat inventories at the close of 2012-13, making now
allowance for recent talk of drought damage to Australia's crop, and flood
losses to Argentina's,
'Prices not high
However, Goldman analyst Damien Courvalin said that while
the USDA numbers would likely bring "near-term corn and wheat price weakness", markets
would recover to levels well above levels Chicago is pricing in.
For corn, current values are "not high enough to sufficiently
ration ethanol demand at current gasoline prices", he said.
Furthermore, the USDA looked set, in October's Wasde report,
to cut its forecast for the number of corn acres which will make it through to
being harvested, rather than being cut for silage or abandoned.
The bank forecast harvested acres at 85.3m, 2.1m acres below
the current USDA estimate, and equivalent to a drop of 255m bushels in
And it foresaw Chicago prices of the grain reaching $9.00 a
bushel in three months' time, 17% above the level the December contract was
trading at on Thursday.
Decline in wheat
For wheat, the bank forecast further downgrades to USDA
estimates for world supplies, "especially in Australia, and as a result lower
global inventories and higher wheat prices".
The outlook for wheat supplies was "poised to tighten
further", Mr Courvalin said, flagging in particularly the drop in stocks in countries
outside China and India, which will drop to their lowest level since 2007-08 –
when wheat prices were on their run up to a record high.
Inventories in China and India, rarely available to the
world market, are viewed as largely irrelevant to global pricing, with greater
importance attached to levels of stocks in major exporters such as the former
Soviet Union and the US.
Goldman said that threats to its forecast for Chicago wheat prices
- which it foresees standing at $9.80 a bushel in three-months' time, some 10%
above December futures – were "skewed to the upside".
"In particular, another crop failure would likely push wheat
prices sharply higher to limit animal feed demand in the face of inelastic
human food demand."
The comments follow some downbeat price outlooks by other
commentators, including University of Illinois agribusiness economist Darrel
"The recent price decline for corn reflected clear
indications of a slowing in consumption and some recent reports of higher-than -expected
yields," Dr Good said.
Unless data from an inventory report later this month "provides
a major surprise, the slowing pace of consumption suggests that corn prices
have likely peaked".
At broker RJ O'Brien, Richard Feltes at RJ O'Brien said that
"further damage" to Chicago corn price charts "along with large fund long
positions, suggests the potential for erosion in the December corn contract
into the $7.40-a-bushel area, in the absence of dire yield reports out of
And even before the Wasde, Societe Generale cautioned that futures prices were too generous.
'Higher soybean prices
However, there was apparently universal thinking that the Wasde report
appeared supportive to soybean price prospects.
The briefing's "confirmation of extremely small [US] supplies
and the ongoing rapid pace of consumption underscore the need for high prices
to ration the small crop", Dr Good said.
"Following recent price declines, prices are now expected to
strengthen modestly, at least until there is some confirmation of a slowdown in
consumption and crop size is confirmed next month."
Goldman Sachs restated a forecast of Chicago soybeans
futures reaching $20 a bushel on a three-month horizon, some 9% above the current
price of the January contract.
"Given critically-low US and South American inventories, we
believe that higher soybean prices will be required to limit demand in the
coming months," Mr Courvalin said.